Randomization and the American put

Peter Carr

Research output: Contribution to journalArticle

Abstract

While American calls on non-dividend-paying stocks may be valued as European, there is no completely explicit exact solution for the values of American puts. We use a technique called randomization to value American puts and calls on dividend-paying stocks. This technique yields a new semiexplicit approximation for American option values in the Black-Scholes model. Numerical results indicate that the approximation is both accurate and computationally efficient.

Original languageEnglish (US)
Pages (from-to)597-626
Number of pages30
JournalReview of Financial Studies
Volume11
Issue number3
DOIs
StatePublished - Jan 1 1998

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ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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